Is Shopify Fulfillment Network a Game Changer?

What is the Shopify Fulfillment Network?

In June 2019, the world’s leading shopping cart provider Shopify, announced that they are now offering a fulfilment service for some of their clients.  You can read the full press release here.

Initially the service will only be available in the US.  What Shopify have done is sign up a collection of fulfilment centres across the country so orders can be despatched to customers from the nearest centres.  This saves time and cost for the online seller.

Currently, online sellers all over the world have to choose their own fulfilment partner and are responsible for integrating their shopping cart to the order processing system.  

The only exceptions to this are online retailers who sell through Amazon and use their proprietary Fulfilment service (Amazon FBA).

Why have they launched this new service?

Because it removes a big headache for their clients. Therefore, clients are free to focus on growing their order volumes.

Finding a suitable fulfilment company can be tricky. Particularly for sellers with small or infrequent order volumes (and most of them use the Shopify platform).

Most fulfilment companies prefer to work with clients who generate a frequent, predictable order volume.  But most sellers are too small for these fulfilment centres and so either do their own pick and pack or use a specialist like myWarehouse.

What Shopify have realised is that the order fulfilment process is CRITICAL for the success of online sellers.  If customers don’t get their orders on time or worse, get the wrong item, then they’ll not buy again and may even share their negative experience on social media!

Amazon has become an online retail giant and one of the main reasons they have been so successful is down to their excellent fulfilment service. Sellers love it but more importantly so do their customers.

But as online sellers know, the main problem of selling and fulfilling through Amazon is that you can’t build your own brand.  The Amazon brand is all over your parcels and if you sell through their marketplace they keep the customers too. 

Why this could be a game changer

Shopify are solving a well known and important problem for their clients.  It is only a matter of time that other shopping carts will follow in their pioneering steps.

Until now, Shopping carts have focussed on all things digital.  They have great templates to choose from.  They have integrated partners for payments, marketing, images, tools for social media selling etc.  But they have never got their hands dirty in the world of physical fulfilment.

We believe, the Shopify Fulfillment Network is the starting gun for this to change.  From now on, all shopping carts will need to find fulfilment solutions for their clients or lose them to a competing cart.

Of course, this could also be a significant new profit centre for shopping carts if they get it right.  But for this to happen they will have to get more involved in the process, rather than just partnering with fulfilment companies.  Partnering is just another word for integrating.

Why this new service may not work

The fulfilment service being offered by Shopify works by having several fulfilment companies integrated into the platform.  The Shopify cart then selects the nearest fulfilment centre to the end customer for pick and pack (after checking that there is stock at that warehouse).

Shopify are smart so they will have negotiated very tight operating agreements with all their partners.  And the performance of each warehouse will be measured by KPI’s and penalties will exist for failure to meet them.

But whilst Shopify have taken the bold step in being responsible for the fulfilment performance, they cannot control it.

Controlling a service is essential in managing workflow, making improvements quickly, reacting to customer demand and investing for the future capacity/demand.

As Amazon have proved, their Amazon FBA service is wholly owned and operated by them so they can do what they want whenever they need to.

Will marketplaces like eBay & Etsy offer Fulfilment?

We think so.  The same problem exists for their sellers.  To be honest, we’re surprised they have not got involved in order fulfilment before now.  

When something goes wrong, the brand suffers.  But when someone buys from eBay (for example) and has a bad experience with their order they will complain about their bad experience on eBay rather than quote the individual seller that caused the problem.  So in the end, all eBay sellers get tarred with the same brush which is unfair.

Similar to shopping carts, it could be that marketplaces have wanted to just focus on the range of digital services they offer and leave the headache of fulfilment for their sellers to sort out.  But that attitude will change.

Is this a threat for traditional fulfilment companies?

It all depends on how good the fulfilment service is being provided by the shopping carts (and marketplaces when they follow suit).  Sellers can always choose their own fulfilment partner as long as the carts and marketplaces continue to allow them access via their API’s.

But if the fulfilment service being offered by the carts and marketplaces is reliable and affordable, then fulfilment companies will need to compete in away they have never needed to before.  Free shopping carts provided by fulfilment companies?  Maybe.

What could happen next?

It will be interesting to see how Shopify perform in this new arena.

Speaking as a fulfilment company who knows the process inside and out, it seems inevitable to us that Shopify will need to take complete control of the fulfilment process at some point.

This could already be their endgame of course.  Launching a network of fulfilment companies is a great way to learn what works and what doesn’t.

But in the end, it is highly probable that shopping carts and marketplaces will embrace the fulfilment service into their existing services.

Because if they don’t, their competitors will.